Agency problems are an important determinant of corporate liquidity. For a sample of more than 11,000 firms from 45 countries, we find that corporations in countries where shareholders rights are not well protected hold up to twice as much cash as corporations in countries with good shareholder...

We investigate how corporate governance impacts firm value by comparing the value and use of cash holdings in poorly and well governed firms. We show that governance has a substantial impact on value through its impact on cash: $1.00 of cash in a poorly governed firm is valued at only $0.42 to...